Quarterly report pursuant to Section 13 or 15(d)

Revenue Recognition

v3.20.4
Revenue Recognition
 3 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
We recognize revenue as, or when, we satisfy performance obligations under a contract. The majority of our contracts have performance obligations which are satisfied over time. In most cases, we view our performance obligations as promises to transfer a series of distinct services to our customer that are substantially the same and which have the same pattern of service. We recognize revenue over the performance period as a customer receives the benefits of our services.
Disaggregation of revenue
In addition to our segment reporting, we disaggregate our revenues by service, contract type, customer type, and geography. Our operating segments represent the manner in which our Chief Executive Officer reviews our financial results which is further discussed in "Note 2. Segment Information."
By operating segment and service
Three Months Ended December 31,
(in thousands) 2020 2019
Program administration $ 293,844  $ 236,907 
Assessments and appeals 32,615  33,831 
Workforce and children services 47,821  29,386 
Other 10,654  12,157 
Total U.S. Services $ 384,934  $ 312,281 
Program administration $ 327,790  $ 281,688 
Technology solutions 34,664  43,606 
Assessments and appeals 42,791  41,277 
Total U.S. Federal Services $ 405,245  $ 366,571 
Workforce and children services $ 77,462  $ 57,239 
Assessments and appeals 53,123  62,643 
Program administration 23,056  17,094 
Other 1,734  2,401 
Total Outside the U.S. $ 155,375  $ 139,377 
Total revenue $ 945,554  $ 818,229 
By contract type
Three Months Ended December 31,
(in thousands) 2020 2019
Performance-based $ 293,960  $ 292,758 
Cost-plus 384,483  362,811 
Fixed price 120,777  119,216 
Time and materials 146,334  43,444 
Total revenue $ 945,554  $ 818,229 

By customer type
Three Months Ended December 31,
(in thousands) 2020 2019
New York State government agencies $ 75,356  $ 97,223 
Other U.S. state government agencies 312,758  209,886 
Total U.S. state government agencies 388,114  307,109 
United States Federal Government agencies 385,573  351,833 
International government agencies 147,342  130,816 
Other, including local municipalities and commercial customers 24,525  28,471 
Total revenue $ 945,554  $ 818,229 

By geography
Three Months Ended December 31,
(in thousands) 2020 2019
United States $ 790,179  $ 678,852 
United Kingdom 64,786  73,002 
Australia 55,932  37,435 
Rest of world 34,657  28,940 
Total revenue $ 945,554  $ 818,229 

Contract balances
Differences in timing between revenue recognition and cash collection result in contract assets and contract liabilities. We classify these assets as accounts receivable — billed and billable and unbilled receivables; the liabilities are classified as deferred revenue.
In many contracts, we bill our customers on a monthly basis shortly after the month end for work performed in that month. Funds are considered collectible and are included within accounts receivable — billed and billable.
Exceptions to this pattern will arise for various reasons, including those listed below.
•Under cost-plus contracts, we are typically required to estimate a contract’s share of our general and administrative expenses. This share is based upon estimates of total costs which may vary over time. We typically invoice our customers at an agreed provisional billing rate which may differ from actual rates incurred. If our actual rates are higher than the provisional billing rates, an asset is recorded for this variance; if the provisional billing rates are higher than our actual rates, we record a liability.
•Certain contracts include retainage balances, whereby revenue is earned but some portion of cash payments are held back by the customer for a period of time, typically to allow the customer to confirm the
objective criteria laid out by the contract have been met. This balance is classified as accounts receivable - unbilled until restrictions on billing are lifted.
•In certain contracts, we may receive funds from our customers prior to performing operations. These funds are typically referred to as “set-up costs” and reflect the need for us to make investments in infrastructure prior to providing a service. This investment in infrastructure is not a performance obligation which is distinct from the service that is subsequently provided and, as a result, revenue is not recognized based upon the establishment of this infrastructure, but rather over the course of the contractual relationship. The funds are initially recorded as deferred revenue and recognized over the term of the contract. Other contracts may not include set-up fees but will provide higher fees in earlier periods of the contract. The premium on these fees is deferred.
•Some of our contracts, notably our employment services contracts in the Outside the U.S. Segment, include payments for desired outcomes, such as job placement and job retention and these outcome payments occur over several months. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery.

Of our revenue for the three months ended December 31, 2020, approximately $14.0 million was from cash payments made to us prior to October 1, 2020. For the three months ended December 31, 2019, we recognized revenue of $18.0 million from payments made prior to October 1, 2019.
Contract estimates
We are required to use estimates in recognizing revenue from some of our contracts. As discussed in "Note 1. Organization and Basis of Presentation," the calculation of these estimates has been complicated by the COVID pandemic, which has reduced our ability to use past results to estimate future performance.
Some of our performance-based contract revenue is recognized based upon future outcomes defined in each contract. This is the case in many of our employment services contracts in the Outside the U.S. Segment, where we are paid as individuals attain employment goals, which may take many months to achieve. We recognize revenue on these contracts over the period of performance. Our estimates vary from contract to contract but may include estimates of the number of participants, the length of the contract, and the participants reaching employment milestones. We are required to estimate these outcome fees ahead of their realization and recognize this estimated fee over the period of delivery. In almost all of the jurisdictions in which we operate, the employment markets have experienced significant changes due to the COVID pandemic. For our existing program participants, many employment opportunities have been terminated or are no longer available. Our volume of new program participants is beginning to increase as governments shift their focus to tackling the residual impacts of the pandemic such as the economy and unemployment, particularly in those countries where the pandemic has stabilized and economies are beginning to reopen. However, it is unclear as to when employers will begin filling roles in industries that remain curtailed. In some cases, we anticipate that we may be unable to place individuals in employment in the short-term.
Other performance-based contracts with future outcomes include those where we recognize an average effective rate per participant based upon the total volume of expected participants. In this instance, we are required to estimate the amount of discount applied to determine the average rate of revenue per participant. Our revised estimates of participant numbers are based upon our updated evaluation of probable future volumes.
Where we make changes to our estimates, these are recognized on a cumulative catch-up basis. In the three months ended December 31, 2020, we reported a benefit to revenue of $10.2 million and a benefit to diluted earnings per share of $0.12 from changes in estimates. The corresponding change in fiscal year 2020 was a decline of $1.4 million.
Deferred contract costs
For many contracts, we incur significant incremental costs at the beginning of an arrangement. Typically, these costs relate to the establishment of infrastructure which we utilize to satisfy our performance obligations with the contract. We report these costs as deferred contract costs and amortize them on a straight-line basis over the shorter of the useful economic life of the asset or the anticipated term of the contract.
Three Months Ended December 31,
(in thousands) 2020 2019
Deferred contract cost capitalization $ 2,491  $ 1,300 
Deferred contract cost amortization 2,287  2,200 
This amortization was recorded within our "cost of revenue" on our consolidated statements of operations.
Remaining performance obligations
At December 31, 2020, we had approximately $400 million of remaining performance obligations. We anticipate that we will recognize revenue on approximately 55% of this balance within the next 12 months. This balance excludes contracts with an original duration of twelve months or less, including contracts with a penalty-free termination for convenience clause, and any variable consideration which is allocated entirely to future performance obligations including variable transaction fees or fees tied directly to costs incurred.